Tag: Relief from Royalty method
Under the Relief from Royalty method value is determined by reference to the hypothetical royalty payments that would be saved through owning the asset. The method has been applied in situations where intangibles are sold to a group company in a low tax jurisdiction only to be used exclusively by the seller under a royalty/license arrangement. The method is particularly useful in these round trip tax avoidance arrangements to neutralize the effect of the arrangement. See TPG 9.61 and example 16 in the Annex to chapter VI.
A relief-from-royalty model will not capture the value of all of the rights of ownership, such as the right to determine when and where a mark may be used, or moving a mark into or out of product lines. Nor does it capture the economic benefit in excess of royalty payments that a licensee generally derives from using a mark. Ownership of a mark is more valuable than a license because ownership carries with it the unlimited right and incentive both to put the mark to it’s most valued use and to increase it’s value. A licensee cannot put the mark to uses beyond the temporal or other limitations of a license and has no incentive to take steps to increase the value of a mark where the increased value will be realized by the owner.